The Labour government is weighing a major shift in how holiday accommodation is taxed. In the upcoming Autumn Budget on 28 October, Finance Minister John Healey is expected to re-classify self-catering lets as second homes rather than as commercial enterprises. The change would move many properties from the small-business rates relief regime to the standard council tax system, potentially adding between £1,000 and £3,000 to an owner’s annual outgoings.
Re-classification of short-term lets and its fiscal impact
Junior Treasury minister James Murray confirmed in a parliamentary answer that the department is reviewing the tax treatment of short-term lets. He noted that concerns have been raised about owners exploiting business rates relief to lower their liabilities. If the proposal proceeds, self-catering accommodation would lose the advantage of reduced rates and would instead be subject to full council tax, a shift that could increase costs for owners who typically run one or two properties as a supplemental income.
Alistair Handyside, chair of the Professional Association of Self-Caterers, warned that the sector is already under pressure. “The average self-catering business owns 1.2 properties and is often run by working mothers or retirees who have already felt the sting of 25 government interventions in the past four years,” he said. He argued that holiday lets supply essential bed space in tourist-dependent towns that lack hotel capacity, and that any reduction in supply would ripple through pubs, restaurants, and independent shops.
Regional mayors granted power to impose a visitor levy
In parallel, the government has given 14 English regional mayors the authority to levy an overnight visitor tax on tourists. Unlike the earlier proposal, this levy would be calculated as a percentage of accommodation charges rather than a flat fee, with Labour-run areas indicating a ceiling of five per cent. The tax is expected to roll out between late 2027 and early 2028.
London’s mayor, Sadiq Khan, welcomed the initiative, stating that the capital would keep the charge below the five-per-cent threshold. A collective letter from Labour mayors—including those serving Greater Manchester, Liverpool City Region, West Midlands, North East, West of England, West Yorkshire, South Yorkshire, East Midlands, York and North Yorkshire—asked Chancellor Healey and Local Government Secretary Angela Rayner to adopt the 5 % figure as a “reasonable ceiling”. The letter emphasised the need for a balanced approach that permits local variation while preventing excessive disparity between regions.
Political opposition and exemptions
The proposal has met resistance from the Conservatives and Reform UK. Shadow Housing Secretary David Simmonds criticised the double taxation of hotels that already pay 20 % VAT, calling it a “Labour double whammy”. Reform leader Nigel Farage dismissed the levy as a “holiday tax” and said his party’s mayors in Greater Lincolnshire and Hull and East Yorkshire would not implement it. Conservative Tees Valley mayor Ben Houchen also ruled out a tourist tax for Teesside, Darlington and Hartlepool.
Mayors who adopt the levy will be permitted to grant exemptions for campsites, but they cannot exclude whole localities within their regions to avoid confusing visitors. The government plans to introduce a dedicated bill to Parliament in “due course”, extending the charge to both domestic and international travellers. Two cities—Manchester and Liverpool—already operate voluntary visitor charges of £1 and £2 per room per night respectively, offering a glimpse of how the new system might function.
Potential repercussions for local economies
Both the re-classification of holiday lets and the visitor levy could reshape the tourism landscape. Higher costs for owners may lead some to withdraw properties from the market, shrinking the supply of affordable accommodation in popular destinations. Reduced visitor numbers, in turn, would affect ancillary businesses such as pubs, restaurants, and retail outlets that rely on seasonal footfall.
The Treasury spokesman defended the broader fiscal strategy, saying the chancellor remains focused on giving families and businesses breathing space while meeting fiscal rules. He declined to comment on speculation, reaffirming that tax decisions will be announced at formal fiscal events. As the Autumn Budget approaches, stakeholders from the self-catering sector, regional councils, and political parties will be watching closely to see whether the proposed measures survive parliamentary scrutiny.
